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SCM Slides
SCM Slides
Globalization of economy Entry of Multiple players. Shortening of product lifecycles Corporate mergers and acquisitions
Need for Supply Chain Management From the traditional approach to Materials Management----
In SCM raw material are procured, items are manufacture, move to warehouses for storage then move to sell.
Purchases
Vendor Decisions Scheduling Requirements Compliance Inbound Logistics
Warehousing Inventory Levels Re-order Quantities Safety stock Needs Inventory Management
Manufacture
Procure
Moving
What is SCM?
Functions rather than processes Does not control more than a few steps Duplicating and competing functions Focus on function and assigned completion Emergence of functional silos
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Selling
Ware housing
Supply Chain Management involves the flows between and among stages in a supply chain to maximize total profitability. (Chopra and Meindl, 2001)
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Exploring supply chain requires a thorough under standing of FUNCTIONING OF SUPPLY CHAIN
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THE SUPPLY CHAIN Supply chain is network of various business entities and processes linking Suppliers, Operations and Customers
Suppliers Operations Customers
Suppliers
Operations
Distributors D1
Retailers
R1 R2 R3
Adversarial
relationship with suppliers Multiple sources Item-based purchasing/ inventory policies Churning of the supplier base/bid mentality
Long-term mutually beneficial supplier relationships Single source Commodity-based purchasing/inventory policies Long-term contract (quality and fair price)
Just in case
purchasing (build inventory) Large batch purchases and monthly deliveries
Just in time purchasing (minimize inventory) Small batch deliveries tied to large batch purchases, focused on manufacturing timelines Electronic payment upon receipt of goods Focus on lowest total cost of ownership
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Why Improve???
Increased competition puts downward pressure on prices Increased requirements for mass customization Increased demand for better service levels Outsourcing an ever increasing number of processes
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Description of SCM
Demand Planning Supply Planning Demand Fulfillment
Government Regulation
Globalization of business
Develop an accurate, reliable view of market demand by identifying market trends and predicting changes in customer preferences.
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Description of SCM
Demand Planning Supply Planning Demand Fulfillment
Description of SCM
Demand Planning Supply Planning Demand Fulfillment
Ensure that the enterprise is prepared to meet the forecasted demand by generating a constrained, optimal supply plan into RESPONSE BUFFERS
Provide fast, accurate, and reliable delivery commitments to customer orders based on planned supply into RESPONSE BUFFERS. Monitor and Manage Order commitments in a profitable way.
Procurement
Operations
Distribution
Procurement
Operations
Distribution STAGE I
Manufacturing firms had three separate material flow systems Buffered each system with inventory
STAGE I Integration - Physical Distribution Management- integration within The Distribution Loop Integration of finished goods transportation, warehousing, inventory and customer service function
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426
Procurement
Operations
Distribution
Vendor
Procurement Operations
Distribution
Retailer
STAGE II = LOGISTICS
STAGE III = SUPPLY CHAIN MANAGEMENT
Integration of materials across procurement/ operations/distribution sub-systems of the firm Requires elimination of inventory buffers through better information interfaces Does not require change in organizational structure of firm
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Manage inventory flow from vendor through firm all the way to retailer Primary Resource Transformation is trading information for inventory as in EDI, ECR, JIT etc. Focus on BOTH level and velocity of inventory
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C U S T O M E R S
Supply chain is network of various business entities and processes linking Suppliers, Operations and Customers
Suppliers
Operations
Customers
Looks at the entire chain Global rather than local focus Integrated rather than fragmented approach
Replenishment Cycle
Customer Arrival
Manufacturing Cycle
Procurement Cycle
Order Arrival
Receiving
Receiving at Manufacturer
Production Scheduling
ESSENTIALS OF SCM
Views on SCM
Automobile
Chemicals/Paints
Consumer Durables
Food
Computers
Wipro, HCL
Newspaper
Logical Structural
IT / ITEC Informational
Customers Orders
Examples of Decisions
Supplier Selection (Tactical) Plant Location (Strategic) Product Line Selection (Strat) Inventory Control (Tactical) Production Scheduling (Ops) Dynamic routing (Ops) MTO vs MTS vs BTO (Str)
STRATEGIC
TACTICAL OPERATIONAL
Procurement
Logistics
Manufacturing
Distribution
Logistics
Mathematical Models
Optimization Models (LP, ILP, MILP, CO, DP) Stochastic Models (Markov chains, Queuing networks, etc.) Statistical Models Game Theory Simulation Machine learning Auctions and Mechanism Design
Strategy
Action plan to achieve mission Shows how mission will be achieved Company has a business strategy Functional areas have strategies
Strategy Process
Company Mission Business Strategy Functional Area Area Functional Strategies Marketing Decisions Operations
SCM/Decisions
Finance/Accounting Decisions
Competitive Strategies..1
Five basic competitive strategies to counter the threat of competitive forces: Cost leadership strategy: by becoming a low cost producer of products/ services. Differentiation strategy: developing ways to differentiate products/services form competitors.
Flexibility Reliability Timeliness
Innovative strategy: involves finding new ways of doing business; development of unique products or entry into unique markets/market niches.
Competitive Strategies..2
Growth strategy: Expanding a companys capacity to produce goods and services, expanding into global markets, diversifying into new products and services. Alliance strategy: Establishing new business linkages and alliances with customers/suppliers, competitors/consultants.
Competitive Strategies..3
In addition to this, other competitive strategies: Locking customers/suppliers: By building valuable relationships, which deters them from abandoning the org. for its competitors. Building switching costs: E.g. by use of IT, Wal-Mart has made customers dependent on continued use of innovative IS.
Introduction
Types of Decisions
1. Strategic or long-range decisions 2. Tactical or medium- range decisions 3. Operational planning and control or shortrange decisions Why is facility location so important?
Facility location has a long-term impact on the supply chain & must be part of the firms strategy. Companies can locate anywhere in the world due to increased globalization, technology infrastructure, transportation, communications, & open markets, Location still matters- clusters in many industries show that innovation & competition are geographically concentrated.
Facilities Location
Critical Decision long lasting impact on financial, employment and distribution patterns.
Factors affecting Location Decision Capital Banking facilities , loans etc Raw Material Availability, suppliers Labor supply , skills , costs Competition Economic aspects Wages to staff, taxes profits Non economic impacts- Ecological , environmental and social. Political Considerations
SOURCING DECISIONS
Process of Buying
Obtaining the right material In Right quantities With right delivery (time and place) From the right source and at the right price
Type of Sourcing
a) Single Sourcing: Planned decision to select one supplier for an item where several suppliers are available b) Multiple sourcing: More than one supplier for an item.
Reasons Favoring More than One Supplier Need capacity Spread risk of supply interruption Create competition Information Dealing with special kinds of business
Early supplier involvement (ESI) is perhaps one of the most effective supply chain integrative techniques.
Lessons:: Key for successful partnerships Building Trust Shared Vision and objectives Personal Relationships Mutual benefits Commitment and Top management Support Change Management Information Sharing Shared Measurements Continuous Improvements
Lessons
Managing supply chain is treated as strategic weapon. This era can be referred as a business war between supply chains and supply chains not between organizations and organizations
C U S T O M E R Optimize to Mfg objectives Optimize to Logistics obj Optimize to Sales & Mktg obj
Aggregate Plan
Aggregate Plan: A statement of a companys production rates, workforce levels, and inventory holding based on estimates of customer requirements and capacity limitations
Service Industry Staffing Plan Regarding staffs and labor related factors
Aggregate plan
Aggregate plan
Inventory Levels
Demand Options
Pricing Promotion Back orders
Reactive
Alter capacity to match demand
Mixed
Some of each
Balancing demand and capacity over the entire planning horizon
New demand
Capacity Options
Hire and layoff workers Overtime/slack time Part-time workers Inventories Subcontracting
Units
Chase Demand
Demand
Production
Time
Chase Approach
Advantages
Investment in inventory is low Labor utilization in high (overtime)
Units
Level Production
Demand Production
Disadvantages
The cost of adjusting output rates and/or workforce levels
Time
Level Approach
Advantages
Stable output rates and workforce
Mixed Strategy
Demand
Disadvantages
Greater inventory costs Increased overtime and idle time Resource utilizations vary over time
Units
Production
Time
Disaggregation
Master Schedule
Lessons
Aggregate production planning is a powerful tool for resources management Suitable aggregate production planning strategy for an organization depends on various organizational and environmental factors
Management of Inventories
Disadvantages of Inventory
Higher costs
Typical Costs..
Costs of purchasing Packing costs Transportation costs Insurance premium Cost of Receiving Inspection costs Material Handling costs Loss caused by scrap, rework Inventory carrying costs Cost of Paper work
What is Inventory?
Stock of materials Stored capacity
Inventory Classifications
Inventory
Process stage
Demand Type
Other
Independent Dependent
Maintenance Operating
Dependent Demand
B(4)
C(2)
D(2)
E(1)
D(3)
F(2)
Inventories:: Others
Replacement parts, tools, & supplies Goods-in-transit to warehouses or customers
% Annual Rs Usage
100 80 60
Class A B C
% Rs 80 15 5
% Items 15 30 55
A
40
B
20 0 0
C % of Inventory Items
50 100
Total Cost
Annual Annual Total cost = carrying + ordering cost cost TC = Q H 2 + DS Q
Figure 12.4C
Annual Cost
Ordering Costs
QO (optimal order quantity) Order Quantity (Q)
JIT is a philosophy of continuous improvement in which non-value-adding activities (or wastes) are identified and removed for the purposes of: Improving Delivery Adding Flexibility Increase innovativeness
JIT/Lean Production
Just-in-time (JIT): A highly
coordinated processing system in which goods move through the system, and services are performed, just as they are needed,
Sources of Waste
Overproduction Waiting time Unnecessary transportation Processing waste Inefficient work methods Product defects
JIT JIT
Reducing waste: Increase Problem Visibility Lower the Water to Expose the Rocks
Inventory
Machine Downtime
Traditional
Much to offset forecast errors, late deliveries
JIT
Minimal necessary to operate Many, small Small Many, short runs
Partners
Assets
Vendor
manufactures/purchases product assembles order loads vehicles routes vehicles makes deliveries
Vendor
monitors customers inventory customers call/fax/e-mail remote telemetry units set levels to trigger call-in controls inventory replenishment & decides when to deliver how much to deliver how to deliver
VMI..
Popularized in the late 1980s by Wal-Mart and Procter & Gamble, VMI became one of the key programs Others
Campbell Soup Johnson & Johnson Barilla (the pasta manufacturer) Indian case:; Praxair India (in collaboration with Wipro infotech)
VMI: Advantages
Increased customer service Increased revenues Lower inventory levels Lower cost of transactions Reduced supply risk
Praxairs Business
VMI (Vendor Managed Inventory)
Inventory is managed by vendor . WalMart
Works on the 3PL model to manage their inventories 3PL service provider not only maintains the inventories at Wal Mart but the same partner maintains for its COMPITITOR (K-Mart)
Praxair is the largest producer and distributor of atmospheric and specialty gases in North and South America and one of the largest players Plants worldwide 44 countries USA 70 plants South America 20 plants
Product classes packaged products bulk products lease manufacturing equipment Distribution 1/3 of total cost
Praxairs Business
Bulk products
Distribution 750 tanker trucks 100 rail cars 1,100 drivers drive 80 million miles per year Customers 45,000 deliveries/month to 10,000 customers Variation 4 deliveries/customer/day to 1 delivery/customer/2 months Routing varies from day to day
VMI Essentials
TRUST Accurate information provided on a timely basis Inventory levels that meet demands Confidential information kept confidential TECHNOLOGY Automated electronic messaging systems to exchange sales and demand data, shipping schedules, and invoicing
Customer
Velocity
Improved channel efficiency by sharing of information between suppliers & customers Reduced inventory levels Reduced production costs
R. M.
Typical IT solutions
EDI ERP Information sharing with suppliers and distributors Information integrated within the organization
Vendor Customer
Intranet Collaborative working Internet Global linkage of various entities e-commerce/ Managing the money flow e-procurement faster DatawareStorage of data and tracking of housing/ customers Data mining Bar coding Technology Smart Cards RFID
Branch office
Distributors Transportation
Etc.
What is ERP?
ERP stands for: Enterprise Resource Planning systems ERP attempts to integrate all data and processes of an organization into a unified system. A key ingredient of most ERP systems is the use of a unified database to store data for the various system modules.
Implementation Success
Must be well planned and thought through. Top down driven, management must take on two roles:
Disciplinarian to stick to plan. Compassionate support for stressful issues.
Advantages of Intranet: distributing information with in organization e.g. Design to manufacturing Internet: Information exchanges across web E-procurement solutions E- commerce: Commerce (Business) over web Blue tooth M-commerce
Smart Cards
Looks like credit card with a embedded computer chip (microprocessor with internal memory chip). e.g. RTO License BPCL used for monitoring and control of trucks basically for fuel monitoring.
What is RFID?
RFID = Radio Frequency Identification. An ADC (Automated Data Collection) technology that:
uses radio-frequency waves to transfer data between a reader and a movable item to identify, categorize, track.. does not require physical sight or contact. Performs the operation using low cost components. Attempts to provide unique identification and
Ethernet
RFID Reader
and a chip attached to it
an antenna, printed, etched or stamped ... on a substrate e.g. a plastic foil ...
RFID Tag
RF Antenna
Network
Workstation
Source: www.rfidprivacy.org
RFID Tags
Tags can be attached to almost anything:
Items, cases or pallets of products, high value goods vehicles, assets, livestock or personnel
Passive Tags
Do not require power Draws from Interrogator Field Lower storage capacities (few bits to 1 KB) Shorter read ranges (4 inches to 15 feet) Usually Write-Once-Read-Many/Read-Only tags Cost around 25 cents to few dollars Battery powered (Cost around 50 to 250 dollars) Higher storage capacities (512 KB) Longer read range (300 feet) Typically can be re-written by RF Interrogators
Active Tags
Source: www.rfidprivacy.org
Read/Write
Tag data can be changed over time Part or all of the data section can be locked
Source: www.buyrfid.org
RFID applications
Manufacturing and Processing
Inventory and production process monitoring Warehouse order fulfillment
Assembly Line
Wireless
Retail
Inventory control and customer insight Auto checkout with reverse logistics
Handheld Applications
Security
Access control Counterfeiting and Theft control/prevention
Shipping Portals
Location Tracking
Traffic movement control and parking management Wildlife/Livestock monitoring and tracking
Smart groceries
Add an RFID tag to all items in the grocery. As the cart leaves the store, it passes through an RFID transceiver. The cart is rung up in seconds.
Smart cabinet
Reader antennas placed under each shelf 1. Tagged item is removed from or placed in Smart Cabinet Smart Cabinet periodically interrogates to assess inventory Server/Database is updated to reflect items disposition Designated individuals are notified regarding items that need attention (cabinet and shelf location, action required) 2.
3.
Smart fridge
Recognizes whats been put in it Recognizes when things are removed Creates automatic shopping lists Notifies you when things are past their expiration
Shows you the recipes that most closely match what is available
Source: How Stuff Works
Think, somebody must have put the petrol into the tank for you to pump from.
Somebody must have prospected for oil, found it, and then dug the well to extract it. Next, somebody must have shipped the oil to a refinery, converted it into Petrol , and then transported the it to your favorite petrol station.
The supply chain for Petrol is indeed quite reliable, so much so that most consumers take it for granted
A) B)
Order Size
Customer Demand
Order Size
Time
Time
Distributor Orders
Order Size
Order Size
Time
Time
Bullwhip Effect
The bullwhip effect is a phenomenon observed in supply chains wherein the demand variability increases as one moves upstream from retailers to distributors to manufacturers
Retailers
Bullwhip Effect
In 2001, Cisco was forced to write down $2.2 billion worth of obsolete inventory, due to uncertain variations in its demand in its supply chain.
Impacts of Bullwhip
It distorts the order information & amplifies order variability.
Company X produces SOAPS for sale on the open market. Customer demand for Company Xs SOAPS become stagnant Retailers offer a sales promotion to boost sales of Company X widgets
Example continued
Retailers fail to notify manufacturers of sales promotion Company X recognizes that demand for SOAPS have increased. Company X increases inventory to allow for increased manufacturing of SOAPS Company X notifies part suppliers of increased demand. Suppliers increase inventory to meet demand.
Suppliers
10 Units
Producers
10 Units
Retailers
Retailers
Cash
Retailers are selling product at a constant rate and price. Firms along the supply chain are able to set their inventory to meet demand.
Cash Flow
As demand increases, the distributor decides to accommodate the forecasted demand and increase inventory to buffer against unforeseen problems in demand. Each step along the supply chain increases their inventory (double in this example) to accommodate demand fluctuations. The top of the supply chain receives the harshest impact of the whip effect.
Key:
= Inventory Levels
Key:
= Inventory Levels
Alliance arrangements.
1. Vendor managed inventory 2. On-site vendor representative
Distribution inventory
All finished goods inventory at any point of time and accounts for 25-30% cost of distribution
Warehouses (distribution centers) Material handling Protective packaging Order processing and communication
Transportation Modes
Road Freight (Trucks)
FTL LTL
9/29/2008
199
Disadvantages
Susceptibility to weather and road conditions in spite of the best protection Unsuitability for heavy loads rail transport more economical for bulk loads Unsuitability for long distances again the rail telescopic rates are more favourable
Advantages of Rail
Economy more so for goods over long distances Efficiency of energy Reliability not affected by weather conditions
Disadvantages
Uneconomical for small shipments and short distances Not suitable for remote stations Costly terminal handling facilities Inflexible time schedules
Railways
Key issues:
Scheduling to minimize delays / improve service Off-track delays (at pickup and delivery end) Yard operations Variability of delivery times
Air Transport
Key issues:
Location/number of hubs Location of fleet bases/crew bases Schedule optimization Fleet assignment Crew scheduling Yield management
Water Transport
Advantages: Mass movement of bulk Lowest freight cost Preferred for long haul of low value commodities Disadvantages: Not for quick transit Suitable for certain types on commodities only
Water
Limited to certain geographic areas Ocean, inland waterway system, coastal waters Very large loads at very low cost Slowest Dominant in global trade (autos, grain, apparel, etc.)
Pipeline Movement
Advantages:
Reliable, continuous, all weather transport Low energy consumption hence low cost Low maintenance and operating costs Underground, no space problem Can traverse difficult terrain Minimal transit losses Operation round the clock, safe Economies of scale double the throughput for only 30% additional cost
Pipeline
High fixed cost Primarily for crude petroleum, refined petroleum products, natural gas Best for large and predictable demand Would be used for transferring oils
Ropeways
Advantages:
In hilly or inaccessible areas Long and circuitous routes with streams / deep valleys For commodities capable of movement in ropeway buckets Short haulages of less than 50 kms Areas where other carriers are uneconomical
Disadvantages:
Heavy investments Limitations on size and quantity of haul
Package Carriers
Companies like FedEx, UPS, USPS, that carry small packages ranging from letters to shipments of about 150 pounds Expensive Rapid and reliable delivery Small and time-sensitive shipments Preferred mode for e-businesses (e.g., Amazon, Dell, McMaster-Carr)
Warehouse
The warehouse is where the supply chain holds or stores goods. Functions of warehousing include:
Transportation consolidation Product mixing Cross-docking Service Protection against contingencies Smoothing
Inventory aggregation decreases supply chain costs if the product has a high value to weight ratio, high demand uncertainty, or customer orders are large Inventory aggregation may increase supply chain costs if the product has a low value to weight ratio, low demand uncertainty, or customer orders are small
Functions
Warehouses
Material handling
Customer service
Information transfer
Storage function
Receive goods Identify goods Sort goods Dispatch to storage Hold inventory Recall, select goods Dispatch the shipment Prepare records and advices
Temporary
Permanent
Purpose of Warehousing
To provide desired level of customer service at the lowest possible total cost It is that part of the firms logistics system that stores products (RM, Packing Materials, WIP, FG) Stores product between point of origin and point of consumption and provides info to management on the status, condition and disposition of items being stored Distribution warehousing relates mainly to FG
Cost related
Achieve production economies Achieve transportation economies Take advantage of Quantity Purchase discounts and forward buys Least Logistics cost for a desired level of customer service
Warehouses
Support manufacturing Mix products from multiple facilities for shipment to a single customer Break-bulk Aggregate Used more as a flow-thru point than as a hoarding point
Transportation Consolidation
Materials Handling
Definition: Efficient short distance movement in or between buildings and a transportation agency. Four dimensions
Movement Time Quantity Space
Coordination
Packaging
Interest in packaging is widespread
Logistics
Warehousing Transportation Size
Reverse Logistics
Movement of goods from the market or customer back to the company The need:
Increased awareness of the environment Stringent legislation For some it is part of the business Profitability of dealing with scrap, surplus
Transportation and warehousing are essential backbones of effective distribution system. Mode of transportation depends on various parameters including density, weight, fragile nature etc parameters. Cost and inventory tradeoff is subjective and need to be worked out with individual cases
Packaging
Introduction
Companies using performance measurement are more likely to achieve leadership positions & twice as likely to handle a major change successfully. Performance measurements vary from company to company. Adding several tiers of suppliers & customers complicates performance measurement. Performance measures must be visible & communicated to all members of the SC.
Will need 2-4 per area -not all the same Will need 3-5 per dept or process
Complex Relationships
Customer satisfaction ??? Or Service Quality Customer Loyalty???? Repurchase Intentions??? More business, Competitiveness and Profitability
False Alarms Occur where there are detailed measures for areas which are not strategically important.
Examples: many efficiency measures
Vollmann and Schmenner, International Journal of Operations & Production Management, 1994
A Balanced Scorecard
Customer Perspective
How do customers see us?
Internal Perspective
What must we excel at?
Financial Perspective
How do we look to our stakeholders?
Kaplan and Norton, The Balanced Scorecard, 1996
Operational Metrics
Goals
Waste Reduction Time Compression Unit Cost Reduction
Measures
Supply chain cost of ownership Supply chain cycle efficiency % of supply chain target cost achieved Product finalization point Inventory turns & days of inventory Supplier evaluations
Financial Metrics
Goals
Profit margins Cash flows Revenue growth Return on assets Return on equity
Measures
Profit margin by supply chain partners Cash-to-cash cycle on receivables & payables Customer growth & profitability Return on supply chain asset Return on supply chain equity
Measures
Number of choices & average response time Customer contact points and product finalization points Order fulfillment rate Customer profitability Delivery speed & reliability
Thank You